Any attempt to bring the management of
CFS Retail Property Trust
(CFX) and its sister vehicle,
Commonwealth Property Office Fund (CPA)
, in house is likely to receive strong support from investors, according to a number of institutional stakeholders.

The comments come after The Australian Financial Review’s Street Talk column revealed that financial advisers were exploring options to extricate
Commonwealth Bank
from its $20 billion commercial property platform, overseen by
Colonial First State Global Asset Management
.

While the fate of the two externally managed vehicles has become the subject of much speculation during the past few years, with the sector gravitating towards the internalisation model, it is understood a number of banks are attempting to thrash out a $1 billion-to $1.2 billion deal.

Commonwealth Bank has declined to comment on the matter but senior sources said it had received a number of unsolicited approaches for the management rights on its listed vehicles.

As
J P Morgan’s
Richard Jones
highlighted in a recent research note, the billionaire shopping mall baron
John Gandel
, who controls a 15.5 per cent slice of the retail landlord, will be a “key player in any transaction". It is understood
Macquarie Capital
is already advising Mr Gandel, while the two funds have retained
UBS
. Commonwealth Bank is thought to have drafted in
Goldman Sachs
.

While some in the market are sceptical that security holders will respond favourably to a costly internalisation bill, others have insisted there would be overwhelming support to retain the current management team at CFS.

A fund manager at an institution that holds a substantial slice in the vehicle stressed the enthusiasm to pay market price for the management rights would be more pronounced at the retail trust than its stable mate, CPA, since running shopping centres is “a far more complex proposition".

Grant Berry
of
S G Hiscock and Co
agreed an internalisation of CFS Retail would be well supported but emphasised that at this stage it remains “just a theory" and any deal would have to be judged upon the “metrics".

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However he added “Generally the market likes internalisation because they see it as an alignment of interests."

One analyst who preferred to remain anonymous claimed Commonwealth Bank’s loyalty could be questioned given that it has exited the buildings owned by its satellite office trust in favour of developments owned by rival landlords.

According to Mr Jones the advent of a tougher regulatory environment under Basel III laws gives an added impetus to the bank’s exit.

He calculates the cost of internalising CFS Retail could total around $285 million, while the bill for CPA would hit $105 million.

His influential report, published earlier this month, highlighted the major challenge to an internalised management vehicle would be “controlling staff costs. We have seen many recent examples in the A-REITs where the cost savings generated from internalising management have been offset by the significant rises in key executive staff salaries".